Economists predict rate rise

Economists have tipped the Bank of England to raise interest rates next month following unexpectedly strong sales and output figures.

Analysts said the bank's monetary policy committee (MPC) was likely to raise base rates by at least 0.25 percentage points after high street sales in December showed their highest growth since May 2002, up 0.9% against the previous month's 0.1%.

There was further good news on the economy from output figures, which showed estimated gross domestic product (GDP) rising 0.9% in the fourth quarter of 2003 against the previous three months, its highest since the first quarter of 2001. The figure of 2.1% for 2003 as a whole met Treasury forecasts.

The Government claimed the data showed that economic growth was now clearly strengthening and that the underlying state of the public finances was strong and sustainable.

Chief economic adviser to the Treasury, Ed Balls, said ministers would resist short-termism and remain vigilant about economic stability.

"We will meet our fiscal rules in this economic cycle and in the next economic cycle too," he said.

The 0.9% rise in December sales volumes was the highest monthly increase since June 2003, figures from the Office for National Statistics (ONS) showed.

Total retail sales grew by 1.9% in the three months between October and December against the previous three months, when the growth was 1.4%.

The ONS said many retailers, particularly women's clothing outlets, moved their end-of-year sales earlier into December as they tried to overcome caution among consumers prompted by November's rise in interest rates.

Analysts said the data comfortably exceeded expectations and would further increase the chances of a rate move at the MPC's February meeting.